Fiscal policy

• What does fiscal policy involve?

  Government spending, borrowing, and taxation
• How does fiscal policy impact the economy?

  It affects aggregate demand and supply
• What is government spending?

  Spending by the public sector on goods and services
• Name one type of government spending.

  Transfer payments
• What are the three types of government spending?

  • Transfer payments (e.g., welfare)
  • Recurring spending (e.g., public services)
  • Investment projects (e.g., HS2)
• What is direct taxation?

  Tax levied on income, wealth, and profit
• What are examples of direct taxes?

  Income tax, inheritance tax, corporation tax
• Can the burden of direct tax be passed on?

  No, it cannot be passed on
• What are indirect taxes?

  Taxes on spending
• Give examples of indirect taxes.

  Excise duties and value-added tax
• Can producers pass on indirect taxes?

  Yes, depending on price elasticity
• What is a progressive tax?

  Tax where the rate rises with income
• How does a proportion tax work?

  Marginal rate of tax is consistent
• What is a regressive tax?

  Tax rate falls as income rises
• What does the government outline in a budget?

  Plans for spending and taxation
• What are the two budget outcomes?

  Surplus and deficit
• Who monitors the government's budget?

  The Office for Budgetary Responsibility (OBR)
• What are the principles of taxation?

  • Equitable: fair for everyone
  • Economical: cheap and easy to collect
  • Convenient: easy to pay
  • Certain: no surprises in payment
  • Efficient: easy to collect
  • Flexible: adjustable rates for circumstances